Environmental Reporting: The E in ESG

Environmental, social and governance (ESG) factors are increasingly important for businesses and investors, as they reflect the impacts and risks of an organization on the economy, society and the planet. Among these factors, the environmental dimension (E) is especially relevant, as it covers issues such as climate change, resource use, pollution and biodiversity, which have significant implications for the sustainability and profitability of businesses.

In this article, we will explore the benefits of sustainability reporting on environmental issues, the main standards and frameworks available for such reporting, and the challenges that organizations face in disclosing their environmental performance and impacts.

Benefits of reporting on Environmental Impacts

Sustainability reporting is the practice of disclosing information on the economic, environmental and social impacts of an organization’s activities, policies and strategies. By reporting on environmental issues, organizations can gain several advantages, such as:

• Enhancing their reputation and trust among stakeholders, such as customers, investors, regulators, employees and communities, who increasingly demand transparency and accountability.
• Improving their environmental performance and efficiency, by measuring and managing their impacts, setting goals and targets, and identifying opportunities for improvement and innovation.
• Reducing their risks and costs, by complying with environmental regulations, avoiding fines and penalties, mitigating the effects of climate change and resource scarcity, and increasing their resilience and adaptability to changes.
• Attracting capital and investment, by demonstrating their environmental stewardship and leadership, and providing decision-useful information to investors.
• Creating value and competitive advantage, by differentiating themselves from their peers, enhancing their brand image and loyalty, and creating new markets and opportunities for their products and services.

Standards and frameworks for reporting

There are several standards and frameworks that organizations can use to report on their environmental issues, depending on their needs, objectives and stakeholders. Some of the most widely used and recognized ones are:

• The GRI Standards, developed by the Global Reporting Initiative, which provide a comprehensive and flexible set of disclosures on environmental, social and governance topics, based on the principle of materiality and stakeholder inclusiveness. The GRI Standards are compatible with other frameworks and can be used to report in accordance with the EU Corporate Sustainability Reporting Directive (CSRD) and the IFRS Sustainability Disclosure Standards (SDS).
• The SASB Standards, developed by the Sustainability Accounting Standards Board, which focus on the financial materiality of environmental, social and governance issues for each industry, and provide industry-specific metrics and guidance for reporting to investors. The SASB Standards are also aligned with other frameworks and can be used to report following the EU CSRD and the IFRS SDS.
• The TCFD Recommendations, developed by the Task Force on Climate-related Financial Disclosures, which provide a framework for reporting on the risks and opportunities related to climate change, and how they affect the organization’s strategy, governance, risk management and performance. The TCFD Recommendations are widely endorsed by investors, regulators and organizations, and can be integrated with other reporting standards and frameworks.
• The CDP Questionnaires, developed by CDP (formerly Carbon Disclosure Project), which enable organizations to disclose and benchmark their environmental performance and impacts on climate change, water security and forests, and to access data and insights from thousands of other organizations. The CDP Questionnaires are aligned with the GRI Standards, the SASB Standards and the TCFD Recommendations, and can help organizations to report following the EU CSRD and the IFRS SDS.

Challenges in environmental reporting

Despite the benefits and the availability of standards and frameworks, environmental reporting is not without challenges. Some of the common challenges that organizations face are:

• Data availability and quality, as environmental reporting requires collecting, verifying and analyzing large amounts of data from various sources, which can be time-consuming, costly and complex.
• Stakeholder engagement and communication, as environmental reporting involves identifying and addressing the needs and expectations of different stakeholder groups, and communicating the information in a clear, concise and consistent manner.
• Reporting integration and alignment, as environmental reporting needs to be integrated with the organization’s strategy, governance and management, and aligned with the relevant reporting standards, frameworks and regulations.
• Reporting assurance and credibility, as environmental reporting needs to be assured by external or internal auditors, and to demonstrate the reliability, accuracy and completeness of the environmental information.

Overcoming the challenges

To overcome the challenges of environmental reporting, organizations can adopt some best practices, such as:

• Establishing a clear reporting strategy and policy, that defines the scope, objectives, materiality, stakeholders and frequency of environmental reporting, and assigns roles and responsibilities for reporting.
• Developing a robust reporting system and process, that enables the collection, verification, and analysis of data, the preparation and publication of reports, using appropriate tools and technologies.
• Adopting a recognized reporting standard or framework, that provides guidance and structure for environmental reporting, to ensure comparability and credibility of the information.
• Engaging and communicating with stakeholders, that involves identifying and consulting with the relevant stakeholder groups, and providing them with relevant, timely and accessible information, using various channels and formats.
• Seeking external or internal assurance, that involves obtaining an independent or internal verification of the information, and providing assurance statements or opinions on the quality and reliability of the environmental report.

Environmental reporting is a key component of sustainability reporting. By reporting on environmental issues, organizations can benefit from enhanced reputation and trust, improved performance and efficiency, reduced risks and costs, increased capital and investment, and created value and competitive advantage.

However, environmental reporting also entails challenges, such as data availability and quality, reporting integration and alignment, and reporting assurance and credibility. To overcome these challenges, organizations can adopt best practices, such as establishing a clear reporting strategy and policy, adopting a recognized reporting standard or framework, engaging and communicating with stakeholders, and seeking external or internal assurance.

Enrol for the GRI Professional Certification today to learn how to use the GRI standards in your sustainability reports. Register herehttps://sgb.ac.ke/gri-training/ or visit our website www.sgb.ac.ke to learn more. Contact us on [email protected] or call 0780524589 | 0700524589.